Salaries in energy sector rise amid market uncertainty

Oil and natural gas are two of our biggest resources, but how much are we willing to pay the people who help to find it, extract it, and refine it?

Some 174 billion barrels of crude oil lie inside Canada’s borders, 169 million of which are locked in the Alberta oil sands. Companies invest fortunes in long-term projects to recover the commodity. According to recruiters, they are still willing to spend significant amounts on retaining crucial skills in this specialist sector, even during uncertain times.

“There is still competition for key skills and labour, at the same time as you have this weird dichotomy in the commodity market,” says Nick Bishop, senior rewards consultant at specialist recruitment consultancy Hays.

Prices have been volatile in the oil and gas industry over the past few years, and this year in particular has been trying. There are downward pressures on the market, as business conditions weaken in China and the U.S. (where supply is also increasing thanks to a raft of new discoveries). Gloomy economic conditions in Europe aren’t helping.

Nevertheless, companies are geared up to deliver oil, and we sit in a production and supply boom that has driven salaries higher. In January, Hays published its Oil and Gas Global Salary Guide, which indicated Canadian professionals average US$128,700 in salaries, compared with a global average wage of US$80,458. 30% of respondents expected salaries to go up more than 10% during the year.

In the shorter term, Canada’s oil and gas industry will need to fill at least 9,500 jobs within the next three years, according to the Petroleum Human Resources Council of Canada. In the longer term, we can only expect more growth.

The Canadian Energy Research Institute estimates that companies will invest $2-trillion in the oil sands between 2010 and 2035.

Investment in new oil sands projects will create 779,000 jobs by 2035, predicts the Institute – that’s approaching the current population of Edmonton.

“Where is the labour supply going to come from?” asks Van Zorbas, National human capital leader for energy and resources at Deloitte. “This isn’t a boom – bust problem any more: it will be ongoing.”

Zorbas isn’t the only one to gloss over uncertain short-term market conditions and look further ahead. As the price per barrel slides this year, you might expect salaries in the oil and gas sector to slip, but they are rising, says Bishop.

“Commodity prices are up and down on a daily basis, but there is such an accumulated investment going on in the oil sands that companies can’t afford to back away,” he warns. “It can be cheaper to protect your investment in key skills than it is to make short-term cuts.”

This is offsetting worries about oil demand and rising inventory, leading Hays to predict general pay rises of around 4% in oil and gas during the coming year. It isn’t the 10% rise that one in three companies predicted in January, but it’s still respectable in the current global climate.

One of the driving factors here is that investment in the oil sands is part of a long-term strategic plan, explains Paul Paynter, business development manager for the energy sector at Calgary Economic Development.

“The oil sands are not vulnerable to short-term changes in oil prices,” he argues. “Depending on the project, were talking of hundreds of millions in investments. Companies making those investment decisions are making a long-term bet.”

Oil firms will invest in skills where it makes sense. Operational fieldworkers can still make a good living, although Mr Bishop isn’t seeing lots of additional demand. Conversely, there is still good competition for engineering skills. “There is a limited supply in Fort McMurray. It’s not back to the level of 2007, nor is it going to be, but neither has it all stopped.”

Companies may be into the oil sands for the long haul, but that doesn’t mean that they won’t keep a careful eye on capital costs, and this means reining in salaries to avoid things overheating. Mr Zorbas for one doesn’t believe that the race to improve salaries is sustainable, even if we are in the middle of a production boom. “It starts to increase capital costs for these organisations,” he says, warning that they were already rising. Pulling oil out of the sand isn’t cheap.

Simply throwing money at employees can hinder a company’s ability to execute, and beyond a certain threshold may also not be as appealing as one might think, he says. Aside from anything else, a bidding war for employees is a zero-sum game.

“The bottom line is that there will always be someone that had a better year who can pay more,” he says. “If the focus is solely on compensation, you will always lose – and the Chinese can pay a lot of money.”

Instead, he suggests other incentives, tailored for particular types of employee. Many white-collar workers such as engineers will value job stability and an investment in leadership training and development, he says. For field operations workers, working conditions and transportation could be key factors.

Beyond that, looking at alternative labour sources is crucial, he says. Temporary foreign worker programs can help to ease pressures in labour supply. Figures seem to bear this out. The Hays report found that rates for imported labour rose roughly 10% to US$123,300 per year while Canadians’ wages remained relatively steady.

The oil and gas sector may be volatile, but it is a slow beast, moving lots of capital into a region where it will stay for a long time. And while current market conditions are worrying for the sector in the short term, time will only see the market grow for this limited resource. Employees on the oil sands will be extracting riches for a long time to come.

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